Now is the time to invest in home improvements.
By Nancy Osmond Popovich
Director and Financial Advisor at The Wise Investor Group
Small improvements like a new front door can add up (Photo by Christian and Kristie via Flickr)
For the past several years, it’s been widely accepted that due to the shaky housing market, any investment homeowners made into improving their house should be done purely for their family’s enjoyment, and not under the expectation that they would be able to get that money back out.
Many homeowners were right to be skeptical or hesitant. Making the decision to invest in improvements to your home is an important one because in most cases your home is more than just a roof over your head. It is also the largest asset in your portfolio. You want to make sure that you not only enjoy the improvements, but also see a return on those investments you make in your home.
Fortunately, the tide and the trends seem to be turning. For the second year in a row, the Cost vs. Value Report by Remodeling Magazine and REALTOR Magazine shows that the value of remodeling for 2014 is up for all 35 projects listed in the survey.
Turning of the Tide
The results of the survey signal a new trend, ending a long slide in the cost-value ratio, which began to fall in 2006 and didn’t rebound until last year. For 2014, the cost-value ratio jumped 5.5 points over last year, which is the largest increase since 2005, when the ratio jumped 6.1 points to reach its peak.
For the first time in four years, improved resale value of residential housing had more of an influence in the cost-value ratio than construction costs. A modest 2.2 percent increase in average national construction costs was more than offset by an 11.5 percent improvement in average national resale value. This reverses a trend that began in 2010, when construction costs dropped dramatically, but resale values dropped even more, driving the ratio down.
In 2013, we saw a change when lower costs were mainly responsible for across-the-board improvement in the cost-value ratio. So while last year was a positive sign for the remodeling market, costs remained volatile and housing values had not stabilized.
Looking at the trends and data from this year’s survey, the most positive sign is that the overall market improvement is being driven by the rising resale value.
Best Bang for Your Buck
So, how can homeowners take advantage of this market improvement? According to the Cost vs. Value Report, Washington, D.C. is among the top 10 cities in the country for cost recouping on eight different home improvement projects, meaning the homeowner sees a positive return on investment or 100 percent-plus recoup.
Lower Cost Options
In our area, the top spot goes to a seemingly simple project — replacing your entry door. While this is a relatively low-cost project, it’s a prominent detail that, when done right, can add tremendous value to your home’s overall curb appeal.
Right behind your entry door in terms of cost recouping is replacing the garage door. Again, what can be a relatively small investment makes a big impact on the look and feel of your home’s exterior.
Deck additions (specifically wood decks, again, reflecting the value you can get out of the lower-cost option) also proved to be a high-ROI project, with a 100 percent-plus ratio in 25 cities across the country, including the D.C. metro area.
Unsurprisingly, minor kitchen remodels also made the list, followed by vinyl siding replacement.
Bigger-Ticket Projects
In Washington, D.C., we continue to see several big-ticket projects among those with the highest return on investment. At the top of the list are exterior improvement projects, including fiber cement siding and foam-backed vinyl siding replacements, as well as higher-end garage door replacements.
Projects that have the potential to add to your home’s living space also continue to be popular choices for homeowners across the country, including attic bedroom and basement remodeling. Both have been trending upward over the past few years, possibly because, compared with building a completely new addition, they represent an inexpensive way to add living space or square footage to an existing home rather than adding on a larger footprint.
The fact is that their comparatively high initial cost (in our area, an average of $50,000 and $63,000, respectively) is now balanced by a higher value at resale than at any time since the peak year of 2005. This signals a return of confidence in the value of remodeling and home improvement as a whole.
Invest in Improvement
As resale values continue to rise along with the cost-value ratio, now is the time to consider making an investment in improving your home with additional space or upgraded replacements.
While there are myriad projects that can help to improve the value of your home, the first thing to do is to make sure that your budget and financial plan allow for you to start your desired project. And of course, make sure than any major changes you make to your home are things you can live with. After all, your home is an important investment, but it is also a place for you and your family to be able to relax and enjoy time spent together.
Nancy Osmond Popovich is a Director and Financial Advisor with The Wise Investor Group at Robert W. Baird & Co. in Reston, Va. A Financial Advisor since 1998, Nancy teamed up with The Wise Investor Group in 2004 to help women gain a greater understanding of and control over their own financial lives. She is a regular guest on The Wise Investor Show and frequent lecturer in the Washington, D.C., area. She also plays an active role in Baird’s mentoring program and has been on the committee of the Baird Network of Women Financial Advisors since 2008. Nancy holds a bachelor’s degree from the University of Maryland as well as a certificate in financial planning from Georgetown University. Member SIPC.
The opinions and advice expressed in this column are those of the author alone.
